So many businesses are still asking this question. The Research and Development (R&D) Tax Credit Scheme is probably the least understood and most lucrative scheme that the government run. It is estimated that only 10% of eligible businesses are currently claiming this substantial extra tax relief.
A large proportion of business people simply haven’t heard of the scheme, which is a crying shame considering what it’s worth.
So, how much are R&D tax credits worth?
A sensible guide to the ‘how much can I claim?’ question is approximately 25p for every £1 you spend on R&D. Even the lowest average claim is in the tens of thousands. Given this excellent investment potential, we think that all our members should take a few minutes to consider if you should be participating in the R&D Tax Credits Scheme.
But I thought it was just for the Science and Technology industry…
This is one of the main reasons that eligible businesses dismiss R&D Tax Credits as not for them. Essentially, if you invest in new products, services and/or systems, you are probably entitled to this tax credit.
The government’s vague definition, “…seeks to achieve an advance in science or technology through the resolution of a scientific or technological uncertainty…” hasn’t helped with this misunderstanding. But the idea of this broad scope was to make the tax credit accessible across more industries, not to have everyone outside science and technology ignore it. The government publish statistics on the uptake of R&D Tax Credits across 18 different sectors. Your business is bound to fit into one of these categories.
Isn’t there a minimum spend condition for SMEs?
There used to be a minimum spend requirement for SMEs of £10,000. This was abolished in 2012 and has been part of the reason that more SMEs are participating in the scheme because more companies are eligible.
What are the R&D tax credit eligibility criteria?
You need to establish that your company and R&D project(s) are eligible. Then you drill down into the figures and work out which of those R&D projects’ costs are allowable.
Company eligibility
Your business needs to be an autonomous limited company, registered in UK, supplying GAAP accounts and paying Corporation Tax. It does not apply to firms that have gone bankrupt.
Project eligibility
The onus is on you to prove that your R&D project is eligible for R&D Tax Credits. If you’ve had even a cursory glance at the scheme, you know that this is not a straightforward process. But it’s not impossible and after completing one application, you will have the processes in place to make future claims much smoother.
Yes, the idea is to encourage innovation, but this doesn’t mean you have to be inventing the next type of drone. Your project needs to be looking to resolve a problem that you cannot find the answer to elsewhere. One of the best bits of the R&D Tax Credits scheme is that it truly awards the actual research and development process. Your project’s success or failure does not in any way affect its eligibility.
R&D Allowable Costs
Lots of companies mistakenly assume that you can only claim R&D tax credits on the cost of actual physical resources used. But you can actually claim for all kinds of costs that are directly spent on the R&D project, such as: consumables, staff, software and capital expenditure – to name but a few. That’s how your R&D Tax Credit cheque starts to really mount up.
Isn’t the paperwork a nightmare?
We only ever give you honest information here, so we do have to agree that the R&D Tax Credit paperwork is complicated. You will need to invest some time in understanding the regulations and producing an accurate submission that meets all the required criteria.
It is a small area of tax regulation and even many accountants give it a wide berth. But it is do-able, there is expert help available and it is very much worth the effort to boost funding your future innovative developments. You’re already imagining what you’ll do with the money, aren’t you?
